Annual Report

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ASTARTA HOLDING N.V. Annual Report 2011• In an effort to minimize logistic and administrative expenses, the Group preferswholesale trade, especially in white sugar and grains. For this reason, it hasestablished reliable relations with an array of major customers, specifically, producersof confectionary and soft drinks. A loss of some large customers or the termination ofcontracts with them, as well as a decrease in sugar consumption by confectionary andsoft drink producers in Ukraine could affect the Group’s operations and financialresults.• Energy, fertilizers, fuel and labor cost make up a material share of the Group’soperating expenses. These expenses are expected to keep growing. While the Groupis working to cut energy and fuel consumption, reduce labor intensity, and optimizefertilizer application, growing prices for these and other inputs influence the Group’soperating and financial results.Liquidity RiskPlease refer to note 32, par. (e) of the Consolidated Financial StatementsPolitical Risk• The markets of agricultural products and agriculture as a whole depend on thecurrently prevailing policy. From time to time, the Government has imposedrestrictions on production and sales, as well as quotas, tariffs and other restrictivemechanisms aimed at protecting the national producers and consumers. Suchrestrictions may affect supply and prices on national, regional and world markets.Any change in Government resolutions or legislation applicable to the Group’s market,the markets on which it competes, or the markets of its competitors may affect itsbusiness, results of operations and financial conditions.Country Risk• Over the past years since gaining independence in 1991 Ukraine has madesignificant progress on its path to a market economy, as well as in political andjudicial reforms. Still the country needs to develop the appropriate legal andregulatory infrastructure that is critical for economic development and successfulsocial and economic reforms.Economic Risk• The Government of Ukraine provides financial support in various forms to nationalagricultural producers. If the Government decides to end subsidizing nationalagricultural producers, the move will have an adverse effect on the Group’s business,the results of operations and financial position.• Ukrainian laws regulating taxes are often changed and amended, which could createeither a friendly business environment or unusual difficulties for the business. Variousopinions are sometimes offered between and within government ministries andorganizations, including the tax authorities, with regard to the correct interpretation ofsuch legislation, raising doubts and creating grounds for conflicts. Tax returns andother relevant legal issues (such as customs and currency control) are subject toreview and study by numerous authorities legally empowered to impose substantialpenalties, fines, and interest.32
ASTARTA HOLDING N.V. Annual Report 2011Legal RiskSince the declaration of independence in 1991, Ukraine’s legal system has been in aperiod of transition, being subject to more risks and changes than more mature legalsystems.Fulfillment of strategy in 2011 and Outlook for 2012Fulfillment of strategy in 2011In 2011, the Group achieved the following goals:1. Development of assets- established control over two sugar plants and other production assets in a newregion of operations – Kharkiv oblast- agricultural land bank in cultivation was scaled up by 17% to 245 thousand hectares- sugar plants daily processing capacity upgraded to c. 33 thousand tonnes of beetper day- total cattle herd increased to c. 28 thousand heads- agricultural machinery fleet was enhanced and its efficiency grew trough continuingintroduction of GPS-control and precision farming program- necessary technological and logistical elements were introduced to prepare onesugar plant for raw sugar processing- the Group further improved logistics and increased capacity of grain and sugarstorage network reinforced transportation capabilities- ASTARTA started on-the-ground implementation of a project of beet pulpmethanization and bio-gas production at one sugar plant2. Production & operations:- provided material increase in output of crops, securing the above-national averagelevel of crop productivity per hectare and competitive production cost- sugar plants’ energy efficiency improved by c. 10%- followed its strategy of vertical integration and intersegment synergy, secured around74% of in-house grown sugar beet for processing3. Organization & management:- improved the organizational structure after consolidating agri-companies and sugarplants into geographically concentrated integrated business units- progressed in optimizing personnel selection, training, and motivation- promoted introduction of corporate integrated environmental management systemand has passed several independent evaluations of working conditions andoccupational safety4. Financial & investment policy:- increased investments into development of key business segments- continued to optimize loan portfolio33
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Viktor Ivanchyk, ASTARTA Holding N.
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